Indian commexes bet big on retail gold contracts

Rutam Vora (Commodity Online)AHMEDABAD: Retail participation in gold investment is steadily rising, prompting the commodity exchanges to innovate products as well as delivery mechanisms with significant volumes being generated from retail products like gold guinea.

Ahmedabad-based National Multi-commodity Exchange (NMCE) is steadily going ahead with its unique investment product, gold guinea. A guinea, weighing 8 grams each has created a separate class of gold investors.

Those, belonging to small income groups, employees with limited income have started investing in this retail product as it gives convenience of small holding. The guinea is a small unit, which can be traded under multiple contracts. Similarly, retail investors can start trading by paying the margin as low as Rs.525 per unit, which is extremely convenient and attractive for small income group, Anil Mishra, Chief Executive Officer, NMCE told.

The increasing participation by the retail investors has called for a separate mechanism for vault and delivery of gold guinea. The guinea contract of NMCE has also created a potential for innovation in storage and delivery module of gold guinea. Historically, the delivery mechanism in gold coins has been a matter of concern for the investors owing to the logistical constraints and limitations of delivery stations. To address this issue, NMCE has tied-up with south-based Muthoot Group for the delivery channel. The investors would be issued a vault receipt by the Mothoot Group in lieu of their promised investments that can be either en-cashed at the exchange or be used against physical delivery at the Muthoot centers.

At a time of settlement, the investor would require to submit the vault receipt at any of the retail outlet of Muthoot Group to get the physical delivery of guinea. Alternatively, the vault receipt can be en-cashed in exchange too.

Speaking to Commodity Online, Mishra explained how retail investors can benefit by investing in small units. It's not only about providing investment product, but we have also created a strong delivery mechanism. A retail investor seeks least logistical constraints as far as delivery of guinea is concerned. With this in view we have joined hands with South-India based Muthoot group, which has over 150 years of experience in gold trading and strong retail network across the country. Presently, our investors can take delivery at 22 locations in the country, which includes places like, Rajkot, Coimbatore and Chennai, said Mishra.

When asked, if he perceives any significant threat from competition with newly opened Indian Commodity Exchange Ltd (ICEX) is also said to be considering a retail product on similar line, Mishra said, Our strength is delivery and quality. More importantly, we (Muthoot and NMCE) are very passionate for gold guinea product. So, there will be no threat from anyone coming with similar products.

The Muthoot brand coins are of .999 purity. NMCE, the first nationalized multi commodity exchange that pioneered the commodity trade in India, became the first national exchange in the country to launch the most innovative gold product (Gold Guinea) on 7th November 2009.

The exchange had registered 100% growth in second physical delivery in Gold Guinea contract. Compared to the 97 GG8 (Gold Guinea 8 gm) coins delivered during the completion of the first contract that ended on 31st December 2009, the number of coins delivered in the second contract, ended on 31st January 2010 was 195.

Our daily turnover in guinea contract was about Rs.10 crore at the beginning. We have seen a steady rise in the participation and in just three months of the start of the contract our daily turnover has touched Rs.30 crore recently, said Mishra.